labor-law3With labor laws easing by Vasundhra Raje’s led government in Rajasthan, expectations for nationwide emulation of such policies in on an all time high. Modi government has repeatedly expressed its eagerness towards streamlining labor laws in the country to foster the business environment and investor sentiment.

The rigid labor laws in India have always kept the companies on their toes and forced many to rethink their investment plans for India. India’s labor laws have their roots in the British raj and were last fully updated in the Industrial Disputes Act of 1948. They prohibit companies with more than 100 employees from making positions redundant and firing people for any cause other than criminal misconduct. An additional 45 national laws intersect or derive from the 1948 act, and about 200 state laws control the relationships between employees and employers, according to India’s Labor Ministry.

Companies must keep 6 attendance logs and 10 separate accounts for overtime wages, and file 5 types of annual returns. There are at least 11 definitions of the word “wage.” Other rules regulate the height of urinals in workers’ washrooms, how often a building must be lime-washed, and how many sand-filled buckets must be on hand to put out fires. The labor commissioner in the government has to be notified of every single person working on the night shift. In addition, no worker can be made to work beyond 75 hours of overtime a quarter.

Many companies have become the victim of workers’ union rise and dominance in the past. Toyota, Tata, Maruti Suzuki to name a few were the companies to have faced persistent lockouts & strikes owing to the labor unions’ demands. As per World Bank , India could have added 2.8 million jobs to the formal economy in the decade through 2007 had labor laws been less restrictive.

The restrictive labor laws in the country present a lost opportunity. Most of the businesses have tried to employ as lesser people as possible to avoid attracting labor laws. The World Bank said in a 2014 report that India has one of the most rigid labor markets in the world and “although the regulations are meant to enhance the welfare of workers, they often have the opposite effect by encouraging firms to stay small and thus circumvent labor laws”.

Hopes are now held high on the new government to hasten through the process of changes in labor laws giving out more flexibility to the firms in hiring and retrenching people, easing the current monitoring laws and giving greater autonomy to the firm over its employees. The government needs to create an environment that allows both businesses and workers to prosper. Lobbying has gained momentum on both the sides i.e. the industry asking for autonomy while workers asking for stricter rules. It is a challenge for the government to maintain an efficient balance between the two.


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